The Hidden Cost of Homeownership: Soaring Insurance Premiums
A Growing Concern for Homeowners’ Associations
As the country grapples with the challenges of homeownership, a new obstacle has emerged: skyrocketing insurance premiums for homeowners’ associations (HOAs). This trend is mirroring the single-family home market, where insurers are either increasing premiums or exiting the business altogether. The primary reason cited is the rising number of losses due to extreme weather events and aging buildings.
The Impact on Homeowners
The consequences of these premium hikes are far-reaching. Homeowners are shouldering the burden through higher monthly dues, making homeownership even more unaffordable for many Americans. With HOA communities making up a growing proportion of local housing stock, this issue is becoming increasingly unavoidable.
A Perfect Storm of Factors
The 2021 Surfside, Florida condo collapse marked a turning point, making coverage harder to secure, particularly for condo associations. Insurance issues are also affecting HOAs comprised of single-family homes, but the impact is most pronounced in communities with communal features like apartments, rowhouses, and townhomes. In regions prone to natural disasters, such as hail damage in Minnesota and Colorado, insurers are becoming increasingly cautious.
The Struggle to Find Affordable Coverage
Insurance broker Eric Skarnes, who insures around 500 HOAs, is finding it challenging to secure options for his clients. “The days of having two, three, or four options are long gone,” he said. “Most associations are just lucky to get a renewal.” Mark Foster, a board member of an 84-unit complex in Lakeville, Minnesota, has seen his HOA’s premiums quadruple to $236,000 since 2021. Despite being spared from severe hailstorms, their insurer dropped them when the total value of their insured property surpassed $60 million.
The Consequences of Rising Premiums
To avoid further financial strain on owners, many of whom are retired and living on fixed incomes, Foster’s board has opted to defer certain projects like road resurfacing and irrigation system upgrades. Nationally, 31% of HOAs reported premium increases of between $100 and $500 per homeowner last year, according to the Foundation for Community Association Research. Another 35% saw increases of under $100.
Exploring Alternative Solutions
In an effort to reduce premiums, Foster’s board is considering a different type of insurance policy that would shift the costs of rebuilding interiors after a disaster onto owners. This would require them to take out more expensive individual policies. While this approach has its pros and cons, it highlights the desperation of HOAs struggling to cope with the rising cost of insurance.
The Unavoidable Reality of HOA Fees
Going without insurance is not a viable option for most condo associations, as it’s often required by law or in association governing documents. Even if it’s not, being uninsured would likely deter condo sales, as having insurance is a requirement for most mortgages. In some parts of the country, HOA fees and associated insurance woes are becoming an unavoidable aspect of homeownership.
The Ripple Effect on the Housing Market
The condo market is slowing down, with prospective buyers balking at fees and higher property insurance costs. According to Redfin data, condo sales are falling, and for-sale inventory is piling up. The problem is most acute in disaster-prone areas like Florida and Texas, where insurance premiums and HOA fees are rising rapidly.
A National Concern
While condo prices are still holding up nationally, the rising cost of insurance is a growing concern for homeowners and HOAs alike. As the country grapples with the challenges of homeownership, it’s essential to address this issue and find solutions to make homeownership more affordable and accessible for all.
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